Economics plan: general information

ECONOMICS
PLAN:

1. 
   GENERAL INFORMATION
   
2. 
   MARKET ECONOMY
   
3. 
   CONCLUSION
   

Abstract
Information economics offers insights into the dynamics of information across networked systems like the Internet. An information marketplace is different from other marketplaces because an information good is not actually consumed and can be reproduced and distributed at almost no cost. For information producers to remain profitable, they will need to minimize their exposure to competition. For example, information can be sold by charging site access rather than information access fees, or it can be bundled with other information or “versioned.” For information consumers, a variation of Malthus' law predicts that the exponential growth in information will mean that specific information will become increasingly expensive to find, because search costs will grow but human attention will remain limited. Furthemore, the low cost of creating poor-quality information on the Web means that the low-quality information may eventually swamp high-quality resources. The use of reputable information portals on the Web, or smart search technologies, may help in the short run, but it is unclear whether an “information famine” is avoidable in the longer term.
The information space on the Internet that we call the World Wide Web continues to grow, offering seemingly unlimited potential for the creation, storage, and dissemination of information. In health care, the Web is seen as offering an answer to everything, from the integration of our fragmented information systems to the delivery of accurate information to consumers, evidence-based medicine, and the electronic medical record.
Yet, while it is beguiling to focus on the advantages of specific technical innovations on the Internet, it is much harder to predict their ultimate utility or impact. We know, for example, that the diffusion, acceptance, and ultimate success of any technology is at least as dependent on the social system in which it is placed as on the nature of the technology itself.1,2 Yet we still lack clear models of what it means to deliver information using a network technology like the Internet in a complex social system like health.
Surprisingly to some, economics may offer insights into the dynamics of information across networked systems. Economic models invoke not just the specific technical advantages of one product over another but the preferences and decisions of individuals who choose to use a product. In the specialist field of information economics, we find theoretic and practical models for creating, diffusing, and using information. Information economics also focuses on understanding how networks of individuals interact to exchange information and on the emergent properties of those interactions. As such, it provides informatics with a core set of theoretic results that have a wider application, beyond the specifics of the Internet.
This review introduces the basic properties of information as an economic good. Beginning with information production, the economic properties of information have substantial importance for those who publish information on the Web, whether their intent is commercial or not. In addition, this review shows that a basic economic analysis of the current growth of information on the Internet has substantial implications for information retrieval by consumers.
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Producing Information: Valuing Information as a Capital Good
Economic commentators regard any information that can be given a market value, such as music, literature, or a product design, as an information good. Indeed, any information that can be digitized is potentially a capital good.3 In health care, we see many examples of the capital value of information. Consumers are willing to pay for health-related information that comes directly from clinical professionals or from mass media such as magazines. Clinicians pay for subscriptions to journals or purchase texts to maintain their skills, knowledge, and professional standing. Pharmaceutical companies are happy to pay physicians for data about their prescribing behaviors so that the data can be aggregated to reveal prescribing patterns for the companies' products.
However, the characteristics of information goods differ from those of traditional traded goods in a number of ways, with interesting consequences for producers and consumers3,4,5,6:
You must experience information before you know what it is. Without reading a book or listening to music, you cannot know whether it is really worth buying. In contrast, there is no need to pre-use normal goods like batteries or oranges, since we can assume that these goods will deliver what is expected of them.
While production costs are typically high and fixed for information products, these products can be copied cheaply (and indefinitely if they are in digital form). The master copy of a book, movie, or soundtrack is expensive to produce but cheap to copy. Creating and maintaining the information content of a Web site is expensive, but making copies of the information for consumers who visit the site costs almost nothing. In economic terms, the marginal costs of reproduction for information goods are low. Worse, initial production costs are “sunk,” in that they are incurred prior to mass reproduction and cannot be recovered in the case of failure.
Since digital information can be copied exactly, it is never consumed. Furthermore, a possessor of information can transfer it to others without losing the information (unless we demand that they forget what they know!). Normal goods like apples, oranges, and houses do not behave in this way. Consequently, the laws of supply and demand that depend on the scarcity of products do not easily apply to many information goods.
Digital information can be transported at low cost, which may approach free transmission across bulk communication networks.
When distribution costs are low and the good itself is cheap to reproduce, producers can be drawn into ruinous price wars, driving the consumer price toward zero.7 Consequently, information can acquire a proper market price only when some form of monopoly protects it, as through the protection of a patent or copyright, which is the usual recourse for creating value and protecting investment.
However, pirates are well able to exploit irregularities in copyright laws to their advantage, and an information good need not be digital for the enterprise to be worthwhile. In the 19th century, U.S. copyright laws did not extend to foreign works, so publishers were able to rush popular works to the United States for reproduction, where they had an almost guaranteed market. For example, in 1843, pirated copies of Dickens' A Christmas Carol sold for six cents in the United States, while the authorized version sold for the equivalent of $2.50 in England.3 Competition among pirates was intense, since the first to publish might have had only a matter of days before its product, too, was copied. Modern software and music pirates operate in a similar fashion.
When free distribution of information is the goal, then this ability of information to be reproduced and distributed at minimal cost is to be welcomed. When the owner of information seeks to generate revenue from the information, it is potentially disastrous. Any document placed on the Web is subject to similar pressures, since it can potentially be copied and subsequently made available on another site. Unfortunately, copyright is weakened as a form of protection for Web documents, because information pirates can place duplicate documents on Web servers in foreign countries that do not recognize or enforce a copyright. Furthermore, the nature of the Web allows consumers living in a country with well-policed copyright laws to access these foreign, pirated documents. Catching Web users who access pirated information is nontrivial and, perhaps, more trouble than it is worth.
This leads to an obvious question: How does an information producer make money publishing on the Web? If consumers expect information to be virtually free, if producing information is expensive, and if, once produced, your product can be stolen by your competitors, then it may seem a forlorn proposition.
The answer is to avoid, as much as possible, creating information goods that must be traded in such openly competitive environments and recreate instead the characteristics of a monopoly. While these avoidance tactics may not ultimately prevent information from entering a pirate market, they delay the inevitable. With sufficient delay, the information may no longer have commercial value, or the producer may have adequately recovered enough costs and generated enough revenue.
Several avoidance tactics are commonly employed. First, unlike most commodity items, most information goods are highly differentiated.3 Each article in a journal is different, and we would not necessarily consider one a direct substitute for another. However, information goods are similar enough for there to be competition among them. Indeed, despite some differences, consumers may not be able to discriminate. For example, a trained clinician may easily detect the difference between two self-help articles written for the general public, but a member of the public may not. In such cases, the reputation of the provider may be the only thing that helps the general public discriminate between information sources. Attaching the brand identity of a professional organization to an information site, for example, may ensure that consumers come there in preference to purely commercial information sources.
Second, it is often suggested that the Internet will herald a competitive pay-per-view model, in which consumers pay only for the information they read. For example, clinicians might pay only for the journal articles they download rather than for an annual subscription for the whole journal. Indeed, one of the big attractions of Web technologies is the potential to charge customers according to their use of a product. However, in such an environment, items of information need to compete with one another, which would drive prices down towards zero. One way to avoid this is to charge a flat fee for entry to a Web site and allow consumers to then take what they need. Comfortingly for information providers, there is theoretic and anecdotal evidence that customers may actually prefer to pay a fixed fee for entry to a Web site rather than a fee per view.7 For example, many pay-per-view TV schemes have flopped. Three main reasons probably lead to a preference for simple and predictable flat fees for access to information. First, flat fees provide insurance against sudden large bills. Second, customers typically overestimate their potential use, so they are happy to pay more. Third, flat fees remove the worry of deciding whether downloading a specific information item is worth the money.
In addition, producers may obtain more revenue for individual information items if they bundle them with other, disparate items and then sell access to the whole package. For example, software is most profitable when it is bundled with other items into a suite and sold for less than all the items, bought individually, would cost. Even though consumers may not need the whole bundle, they are happy to pay a higher price for it than for a single piece of software. Since the cost of manufacturing software is marginal, bundling provides more revenue from individual consumers. So, buying access to a Web site or to a whole issue of an electronic journal not only may be preferred by consumers but also may be more profitable for producers.
Finally, information producers can recover their fixed costs through creative pricing and marketing. It is common for different groups of consumers to pay different prices for different versions of the same information. Some consumers are happy to pay for an expensive hardback copy of a book because they can read it earlier. Others are happy to wait and read the cheaper paperback. Some investors are happy to pay a high price for real-time stock quotes and complex financial analyses, while others are happy to read free but delayed stock prices with little or no analysis. Information can be “versioned” along many dimensions, including delay, user interface, convenience, image resolution, format, capability, features, comprehensiveness, annoyance, and support.8 So, while an electronic journal may make its contents available free to the public, it may provide extra services to its fee-paying subscribers, such as the ability to see articles prior to general release, advanced search and current awareness notification services, higher-resolution images, and access to links to related materials.9